Plunging Auto Sales Reflect Effects of Credit Crisis, CAW Says

November 3, 2008, 4:23 PM EST

The dramatic decline in North American auto sales last month (to their lowest levels since the recession of 1991) reflects the crisis in credit conditions in the industry, says Ken Lewenza, President of the Canadian Auto Workers. He called for North American governments and central banks to act immediately to offset the industry's credit freeze, with the same urgency as they have assisted banks and financial institutions.

"The federal government and the Bank of Canada have channeled close to $50 billion in financial assistance to Canadian banks and other financial firms," Lewenza said. "But banks aren't the only victims of this crisis."

"It is essential that our government, in concert with U.S. officials, move quickly to get credit flowing again through the auto industry," he added. "Otherwise, we will face an industrial disaster, with consequences that will haunt us for decades to come."

Auto sales declined precipitously in October, especially for the North American automakers whose internal credit divisions, and whose access to external credit, has been most damaged by the global financial crisis. The decline was most severe in the U.S. market - which receives close to 90 percent of the output of Canada's auto assembly sector, and over two-thirds of Canadian-made auto parts.

According to CAW economist Jim Stanford, "the continental auto industry is now facing a true credit freeze that is being experienced on several levels."

First, Stanford said, prospective auto customers cannot obtain credit to finance new vehicle purchases (especially from the in-house credit divisions of the automakers, which traditionally finance most car purchases - but which have severely cut back or eliminated leasing and financing programs in recent months). Second, new car dealers cannot attain credit to finance their wholesale orders of vehicles. Third, the automakers themselves cannot attain financing to carry them through the temporary sales downturn. Finally, auto parts companies are in desperate financial straits due to falling demand, and their access to normal operating credit has also been severely compromised.

Lewenza urged the federal government and the Bank of Canada to work to provide emergency liquidity injections to the auto industry, in the form of low-interest loans, loan guarantees, and/or the swap of liquid for illiquid assets. All of these forms of assistance have been offered to Canadian banks in recent months.

"There is no dividing line between banks, and the rest of the economy. The credit crisis is now badly damaging our real economy, not just the financial sector, and government has a responsibility to act," Lewenza said. "We cannot allow this financial chaos to inflict more bankruptcies, shotgun mergers, and long-term damage on our real economy."

GM and Chrysler are engaged in merger negotiations - motivated reportedly by GM's desperate need to access cash resources to survive the credit freeze. "We shouldn't have to endure wholesale closures and mass layoffs just because the banking system gas failed at its job," Lewenza said. "We should provide this industry with the credit it needs, rather than rushing into shotgun mergers that can only destroy jobs and communities in the long-run."

Evidence of the dramatic downturn in Canada's auto sector continues to mount. During the first 8 months of this year, Canada lost 10,000 more positions in the auto assembly and parts sectors - bringing the total job toll since the auto industry peaked in 2001 to over 35,000. Output from Canadian assembly plants has been cut back sharply, and could fall below 2 million units for 2008 as a whole (its lowest level in 16 years). Canada's automotive trade balance has collapsed: the auto trade deficit (which first emerged in 2006) reached almost $10 billion during the first 8 months of 2008, in the face of plunging exports to the U.S. and record imports from offshore.

"This is an industrial emergency, and government cannot sit on the sidelines," Lewenza said. He urged incoming federal Industry Minister Tony Clement to convene an emergency session of the Canadian Automotive Partnership Council - the joint business-government-labour body that has met only twice since 2005.